Valuation and risk management in energy markets

The recent evolution of the energy markets in Europe confronts its various players with three major challenges:

• the opening up to competition and the emergence of energy exchanges
• the end of the principle of speciality and third party access to infrastructure,
• the implementation of environmental policies.

The traditional theories of mathematical finance meet here their limits and must evolve to meet the new modelling challenges posed by these markets.

This course is an introduction to the energy markets and to the methods currently developed to answer the questions of valuation of derivative products and risk management that are encountered there. The course curriculum is as follows:

• Introduction to oil, gas, electricity, coal and emissions markets.
• Pricing models for energy and emissions
• Valuation and hedging of derivatives in the energy markets
• Valuation and management of real assets (swing options, storage, CCGT…)
• Risk management (financial, physical and climate)
• Knowledge control.

References

• H. Geman, Commodities and commodity derivatives : Modeling and Pricing for Agriculturals, Metals and Energy, Wiley Finance 2005
• A. Eydeland and K. Wolyniec, Energy and Power Risk Management : New Developments in modeling, Pricing and Hedging, Wiley Finance 2003